Apple makes $208 on each $499 iPad | Hacker News Reader

Apple makes $208 on each $499 iPad

computerworld.com

18 pointscwan28 comments

They priced the A4 chip at $15, which sounds awfully aggressive to me. That's what you'd expect for a mass market chip for a item you buy in quantities of hundreds of thousands after all the kinks are worked out in the fab. This is a custom job, which hasn't sold anything yet. It will only get to that if the iPad sells huge numbers.

And obviously none of that includes the engineering costs to produce the chip in the first place.

Well, they're selling it to themselves; other chips have mark-up. The engineering costs were factored into the purchase price of PA Semi, I imagine.

You have to keep paying the engineers even after you buy out the company, you know. Having to buy PA Semi just made it more expensive for Apple to develop the chip. This is definitely a long term payoff horizon.

I thought EVERYTHING was done by Jobs. Surely he's not paid that much! There are no RnD costs, Steve just dreams it all up.

Jobs' salary is $1 a year, and yet he is often cited as the most valuable CEO in the world. Though to be fair, every so often the board awards him with stock options, airplanes, and all kinds of other bonuses.

Generally for internal accounting you will mark it up to a fair value anyway as it makes it easier to see where costs are allocated and which divisions are profitable, but doesn't change the overall profitability of the company

Apple paid (reportedly) about $250,000,000 for PA Semi. Is that factored in at all?

I hate things like this. They're extremely speculative, and take absolutely no account for research or advertising.

Without the highly successful and essential research & marketing that Apple has been doing, they wouldn't be Apple. How much money goes into that?

That said, where can I get that screen + multitouch capabilities for $100, 16gb good flash for $25, and that processor for $15? Show me to the nearest store, and I'll happily drop twice that if they'll sell.

Well, because R&D and marketing costs are fixed costs and go to SG&A (Sales, general and administration).

What the article talks about is variable cost and it goes into COGS (Cost of goods sold).

And Sony loses hundreds in each playstation 3 sold, but they make it up on games. Apple makes hundreds of dollars but still forces you (to some degree) to use their proprietary store. It's not like Sony didn't spend r&d and all that fancy junk on the ps3 too.

The AppStore is a means to an end, it's not a gold mine. If I remember correctly from the last report, it about breaks even.

a) this is all extremely speculative and not really based in reality

b) this assumes that R&D, software/hardware development and pretty much everything else that goes into making a product is free.

You make very good points, which were further elaborated (by Gruber re:iSuppli and the iPhone) here: http://daringfireball.net/2007/07/isuppli

These estimations on profit margins are really useless, and tend to take the discourse off track.

Not to mention retailer and distributor markups. Most iPods are not sold direct by Apple.

Yeah, I guess the truck driver who delivers these products to the retailer works for free as well...

Even if this seemingly premature and speculative analysis is correct, it shouldn't come as a surprise that Apple makes a good profit margin on their hardware. In the last decade they've demonstrated the pattern of using media distribution as the loss leader to sell their profitable hardware.

What's impressive this time is that they may make such a healthy margin on a hardware product that came in so far under everyone's expected $800-1000 price point.

IIRC, Apple currently dominates the profit margin on computers even though it doesn't dominate volume, thanks to its ability to sell value.

The very nice thing about this (if true) is that it will allow Apple to continue to mercilessly drive prices down while continuing to invest in R&D. That's exactly what they did with iPods and laptops, and it must be insanely difficult to compete with them.

Can you imagine rolling out a product priced at $450 knowing Apple could put the iPad on sale for $400 and still make money? What are you going to do, break even at $400 only to watch them sell it for $350 and outsell you and still make money?

I honestly am amused at those guys who screwed over TechCrunch at this point. They're sitting at a device they need to sell at a 500 buck price point, in direct competition....

They say Apple makes the most from the 3g models. But gottabemobile.com had a good article on that it maybe a reverse subsidy which Apple pays ATT a certain amount per 3g unit sold get the $15/30 no contract pricing. So if that's true, they aren't really making much extra on 3g vs. no 3g models.

Yeah, must be what the $130 is for.

That's actually surprising to me. With a large capacitive multi-touch screen like that, I would have figured the cost would have been higher.

Perhaps the analysis is incorrect? Come on, this isn't reddit. We can't believe everything we read on the Internet.

What does this have to do with reddit? It's been a long time since I've been on reddit, but I don't remember the commenters there believing everything in every linked article. On the contrary, I saw deeply suspicious attitudes and conspiracy theories on what I would have thought were tame topics.

The crowd at reddit has gone rapidly downmarket in the last few months. Take this comment thread from a couple of days ago:

http://www.reddit.com/r/WTF/comments/ava3b/australia_bans_sm...

Obviously the idea that the Australian censorship board is banning all porn that features breasts below a certain size is incorrect, yet not one commment in the > 1000 thread has questioned the accuracy of the article.

Apple has generally had a profit margin of 35% across it's lines, I think they said in their last financial call they were now averaging near 40% gross profit margin:

40% of $499 = $199.60

I think this product is an exception to that rule. The reason is that there is no tablet market. It doesn't exist.

Apple is doing what they hardly ever do here; they're selling the iPad at low margins (which will get higher with time) in order to take this market, giving competitors little chance to undersell them with their inevitable knockoffs.

They usually don't do this. Usually they care more about margins and profit than about market share. But they're in a golden position right now; they have more cash than they know what to do with, they're making loads of money while their competitors are struggling.

That completely ignores R&D costs, basically. They designed the chip themselves, so there's R&D costs there. They also wrote the software, and may have had the touch screen custom-designed or something (correct me if I'm wrong on that, I just know it's supposed to be unusually pretty and precise.)

So yeah, if they sell an infinite number, there average profit margin should be $208. Realistically, a reasonable chunk of that (I'd guess well under half, but probably not negligible either) goes to designing the product and the components.

If true this makes sense. When the IPhone came out it was over priced, I assume to help pay for their R&D.

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